Apria Calls Off Acquisition of Vitas Healthcare

COSTA MESA — Apria Healthcare Group Inc. said Wednesday that it is calling off plans to acquire Miami-based hospice operator Vitas Healthcare Corp. after concluding that the combined operations would be a drain on Apria's earnings next year.

The Costa Mesa company, which announced the acquisition plans on June 6, originally touted the $212-million deal as a way to expand beyond its home-care business into care for the terminally ill.

But Apria's stock lost more than a third of its value in the months following the announcement, and the company last week indicated that it wanted to drop the deal. Analysts who have been disappointed with the financial performance of both companies indicated last week that they were pleased when Apria said the deal was falling apart.

Apria, which provides medical services and equipment to patients at home, said the acquisition proposal included a provision for terminating the cash-and-stock deal. However, a spokesman for privately held Vitas said the company is reviewing its options and isn't ruling out the possibility of suing Apria.

Apria contends that terms of the agreement allow it to call off the acquisition if its stock falls below $22.125. The stock, which was trading at nearly $32 per share at the time the acquisition was announced, closed Wednesday at $21.50, up 75 cents, on the New York Stock Exchange.

Officials said Wednesday that the companies are still discussing the possibility of some type of business relationship. But Apria board member Charles Martin noted, "Of course, we'd be less motivated to do a strategic alliance if they become confrontational."

Analysts who had frowned on the proposed deal said Costa Mesa-based Apria should concentrate on its home health business. Previously, analysts had raised concerns about Apria's slower-than-expected growth in sales and profit following the merger between Orange County rivals Homedco Group Inc., and Abbey Healthcare Group Inc. to form Apria.

Apria announced in late September that earnings this year might run as much as 8% below analysts' estimates. The company cited problems setting up computer systems to handle the combined Abbey and Homedco operations.

Apria said it expects to take a fourth-quarter charge of $4 million to $8 million in merger-related expenses.